How to trade stocks in Nigeria? A Beginner’s Guide | The Guardian Nigeria News
Since the advent of electronic commerce in 1970, the trend for stock trading has been steadily accelerating around the world.
Over the past decade, there has been increased participation of millennials in the stock market through online trading apps like Robinhood and E-Trade, which has boosted trading numbers.
Nigeria has also seen a growing interest in online trading with millennials and older stock traders using local trading platforms.
But it has been noticed that many new traders generally tend to ignore the basics and risk factors involved in trading while trying to make big profits, in turn they end up losing money. To make better profits, it is important to understand the details of the stock market and the guidelines associated with stock trading.
Below is our complete guide for beginners who want to start trading stocks in Nigeria.
What are stocks or actions?
A share or a share represents the property of the company or the company. Owning shares of a company means that the shareholder owns a portion of the assets and profits of the company or company.
All shares held by external investors in a company are called outstanding shares. Suppose if a company has 500,000 shares outstanding, then owning 50,000 shares means owning 10% of the shares of the company.
Any business or corporation that exists in the world is either public or private. A private company is usually owned by a few people who can be founders, managers or private investors. A state-owned company is a company in which ordinary persons or the general public can hold stakes in addition to the promoters or founders of the company – by purchasing part of the shares offered as part of an initial public offering or through of
For example, Aliko Dangote owns shares of Dangote Group, Elon Musk owns shares of Tesla. Simply put, if you want to own a portion of a company, you will buy its shares.
The value of these stocks keeps changing due to the performance of the company and many other factors. Frequent buying and selling of stocks for the purpose of profit is called stock trading.
How does stock trading work?
The act of buying and selling stocks on the stock exchange with the expectation of making a profit is called stock trading while long-term stock accumulation is called investing in stocks. Traders who usually buy and sell stocks on the same day are called day traders.
An exchange is a secondary market where all of the major shares of public companies are traded.
The exchange matches potential buyers and sellers of shares of publicly traded companies. This means that if you buy shares of a company, you buy them from other shareholders who want to sell on the stock exchange.
For example, Tesla, Microsoft, Alphabet, Guaranty Trust Bank Plc are publicly traded and investors can buy and sell them on the stock exchange.
Only state-owned companies are allowed to trade publicly on a stock exchange, which means that outside investors or the general public can invest in them through the stock market. It is a way for companies to raise capital for the expansion of their activities or to raise initial financing in the event of an IPO. Each new business must register through an initial public offering (IPO) on a stock exchange.
Investors normally earn income from company profits in the form of dividends or by speculating in the value of stocks as a day trading or stock market value investment.
Individuals can buy and sell shares of any listed company at varying stock market prices.
Companies are not allowed to participate in stock trading, but they can buy back their own shares or issue more shares.
There are different exchanges around the world. Some countries have multiple stock exchanges like the United States has the Nasdaq and the Dow Jones. Nigeria has only one stock exchange namely: NSE (Nigerian Stock Exchange). There is a total of 169 companies listed on NSE which have a market capitalization of 29.5 trillion yen as of September 8, 2020.
How to invest in the shares of a company?
The exchange connects buyers and sellers who want to trade in the same security. The broker acts as an intermediary between the exchange and the buyer or seller and charges a commission for the execution of trades. While owning the shares of a company, the individual has a stake in that company which is publicly traded.
Nigerians can invest in any Nigerian public sector company and can also invest in stocks of
1. Buying shares of Nigerian companies on the Nigerian Stock Exchange
To buy and sell shares of a public sector company listed on NSE, you must open a stock trading account with a NSE Registered Trading Broker. The process is straightforward and can be completed within 48 hours by filling out the basic details and providing the required documents.
Besides the stock trading account or brokerage account, you must also have a Central Securities Clearing System (CSCS) account. CSCS maintains ownership records for every title in Nigeria. The CSCS account opening form is provided by the broker which must be completed and submitted with supporting documents.
Once a CSCS account is opened, a clearing house number (CHN) is provided which is unique for each registered wallet. After opening both accounts and submitting the required documents, retail investors can start placing orders through the broker to execute stock trades.
2. Buy stocks / shares of foreign companies
As an equity investor, you want to invest in a wide variety of leading companies. But the shares of foreign companies like Apple, Tesla, Microsoft, Google are not listed on NSE, so for this you would normally open an account with a foreign broker like Robinhood, E-Trade but this is not possible because the Most of them brokers do not accept foreign clients.
However, several apps have been launched in recent years that allow Nigerian traders to buy and sell shares of foreign companies. Trove, Chaka, Bamboo, Wealth.ng, etc. are examples of applications that allow trading of foreign stocks.
There too some forex brokers in Nigeria who offer CFDs; Online trading through their apps like Hotforex, ForexTime and some foreign CFD brokers like – Etoro, Avatrade, XM, Exness, IG which accept Nigerian clients. These brokers allow shares of foreign companies to be traded around the world as CFD instruments and some even offer direct ownership of shares. However, it is important to note that CFD instruments have their risks and you do not get ownership of the shares.
Things to consider before trading stocks online
For a convenient and safe trading experience, novice traders in Nigeria should keep the following points in mind.
1. Risks and risk management
The stock market is uncertain and price movements are completely random for a number of reasons.
Each action contains a different risk factor which should be analyzed and taken into account before executing the
The risk factor of the portfolio can be controlled by owning shares of companies from different sectors.
The risk / reward ratio should also be checked before investing.
You must also learn about risk management before investing – It is an act of identification, control,
and mitigation of possible risk elements. It could be achieved by using the risk management tools offered by
brokers like Stock Loss.
2. Trading / transaction fees
A variety of stock brokers are available in Nigeria and each of them charges different trading fees and commissions. Before you start trading stocks, it is important to understand all of the trading and non-trading fees that will be charged to traders.
3. Information, flow and data
Traders must have correct information about stocks and must be able to compare each
stock on hand based on available data. Traders can also create a goal-driven strategy for trading based on the chart data of previous price movements. Overvalued stocks should be avoided while undervalued stocks with a possible upward movement should be preferred. This information is available as a market feed and as data from most brokers.
4. Invest in education and follow the advice of others
Traders should try to educate themselves on the basics and investment strategies before executing one.
Knowing about market trends, price fluctuations, major news that can trigger a price movement can play a crucial role in turning losing trades into profitable trades. Traders should not blindly follow others and should
use their own analysis to avoid serious losses.
5. Train with a virtual / demo account
It is best to learn basic terminologies and investment strategies through a demo trading account with virtual money. This will help you to check the suitability of the selected stocks and the investment strategy with your trading goals and objectives without losing money.